Despite talk of over-investment in infrastructure and China's propensity to build "bridges to nowhere" it is evident that Chinese aboveground infrastructure has benefited at the cost of underground infrastructure, namely drainage, subway and social housing, according to Bank of America's Ting Lu.

Lu writes that there is a huge disparity between "profitable and visible infrastructures" (aboveground infrastructure) and infrastructure which is "good for social welfare and long-term economic health" but less profitable in the short-term (underground infrastructure).

Lu explains that part of the under-investment problem is because of the way the Chinese government and public finance is structured.

"In China, with a few exceptions like railways, almost all infrastructures including inter-province highways were built by local governments, which are prohibited by law from raising money from bond markets but are also under tremendous pressure to boost local GDP growth. Against this backdrop, local officials naturally biased their spending towards aboveground infrastructure which could boost GDP growth, while saving money on underground infrastructure.

But let’s be fair: It’s not all local government’s fault. Prohibited from borrowing long-term funding from capital markets, local governments have to rely on relatively short-term bank loans to finance their infrastructure spending, and then they have to favor those profitable projects which could generate enough cash flow for repaying bank loans.

In our view, a near-term solution would be the opening up China’s bond markets to municipalities for funds which are earmarked for investing in projects like drainage. The long-term solution is perhaps to change performance measures of local officials which are currently excessively biased towards economic growth, in our view."